Reviewing the interim financial statements of the business should be a regular occurrence for entrepreneurs says Edmonton bookkeeping. Business owners need to know the financial state of their business so that they can know what activities they need to do to become successful. It can also help them see where they are about their business plan and if they need to readjust anything that they are doing to hit their goals. They should be receiving interim financial statements once every two weeks or at least every month. When that information comes in, business owners should get into the habit early on in their business to take the time to review those statements and understand what they are saying about their business.
While looking at the balance sheet and the income statement together can be a powerful review, Edmonton bookkeeping says entrepreneurs should first learn how to review the balance sheet and understand what it has to say and then look at the income statement together with that balance sheet. A common mistake that many entrepreneurs make is simply looking at the income statement to understand the finances of their business. This is unreliable, and business owners can end up making poor business decisions if this is the only interim financial statement they are reviewing.
The balance statement is going to tell an entrepreneur an overview of the finances of the business. It will show the entrepreneur their assets and what money they have available to use. It is also going to show the entrepreneur all of the money that they owe others and the amount of money that others owe them. It is also going to show them the equity that they have in their business. By understanding what information the balance sheet is going to show an entrepreneur, they can be prepared for looking at each component in understanding what it means says Edmonton Bookkeeping.
When entrepreneurs are figuring out the assets that they have in their business, they often think that they have to note every single thing of value which could end up causing them to spend a lot of time figuring out very small assets that are not going to impact the balance sheet significantly. Edmonton bookkeeping has come up with the great formula that entrepreneurs can use to help them not what kind of assets should be included in their balance sheet. Anything over one thousand dollars value that has a useful life of at least one year. By using this formula, entrepreneurs can ensure that they have significant assets accounted for while avoiding trying to put a lot of time into a bunch of smaller assets. Their time is better spent reviewing their balance sheet and making financial decisions in their business.
By learning the information that is on a balance sheet and how to read it can help entrepreneurs understand what is going on financially in their business so that they can make more informed financial decisions in their business.
They can be confusing for entrepreneurs to try to understand all of the business finances that they need as a brand-new entrepreneur says Edmonton bookkeeping. However, if entrepreneurs are not understanding what the financial state of their business is, they may be put in a difficult position when they have to make financial decisions. If entrepreneurs can get into the habit of learning how to read interim financial statements and more specifically the balance sheet, they can be armed with knowledge whenever they have to make a financial decision in their business. This can help them make the best decision that they can that can help them grow their business, and avoid making decisions that could negatively impact their finances.
The first section of the balance sheet will show an entrepreneur all of the assets of the corporation. The order that they are listed in has some significance as well. It will be listed in the order of how easy it would be to make liquid, in case an entrepreneur has to pull out that money quickly. Therefore the cash that an entrepreneur has in the business bank accounts will be listed first. After that, their hard assets including equipment, vehicles, and property. Their Accounts Receivable will be listed after that says Edmonton bookkeeping even though that is not money that they have in their business yet, it is money that they are owed so it counts in this section. At the very bottom, business owners can find an intellectual property such as patents.
The second section of their balance sheet will show all of the liabilities of the business. Edmonton bookkeeping says that all of the money that an entrepreneur is owing others should be put in this section. That means not only all of their invoices and bills but credit cards that they are paying off, payroll, taxes and anything that an entrepreneur owes within that fiscal year. Business owners often have questions when it comes to this section, such as can they put personal credit cards on the balance sheet if there using them for business. This is something that entrepreneurs ask quite frequently, and while business owners mustn’t get into the habit of co-mingling their business and personal accounts and credit cards if they have done it, it needs to be listed in their shareholder’s loan account instead of on the balance sheet. Business owners should be aware of this and avoid it whenever possible especially if they get an audit letter from CRA. It can make it extremely difficult as well as time-consuming and costly if too many of their business and personal accounts are mixed.
Understanding the balance sheets of their corporation can help entrepreneurs understand the overall financial picture of their business which can help them not only make financial decisions but help them hit their business goals that have been outlined in their business plan with their accountant. This can be extremely important and impactful for entrepreneurs and help them succeed in business.